Satellite Radio in Canada Faces Its Own Uncertainties

By IAN AUSTEN

Published: February 21, 2007

While many questions surround the planned merger of the XM and Sirius satellite radio systems in the United States, the situation for the two companies' Canadian affiliates may be, if anything, more uncertain.

Because Canadian rules ban foreign ownership of broadcasters, two Canadian-owned companies began offering the XM and Sirius services, with some additional Canadian content, in late 2005. The companies, Sirius Canada and Canadian Satellite Radio Holdings, have not discussed a merger of their own, but technology and programming changes resulting from any deal in the United States would probably force them to combine. As in the United States, any such merger would face intense regulatory scrutiny.

''I think for us in the short term, this makes things more complicated,'' said John I. Bitove, chairman of Canadian Satellite, which has a 10-year agreement to sell XM services in Canada. ''In the long term, it will be much simpler. We'll spend our time growing the satellite radio business rather than going after each other.''

Jeff Roman, a spokesman for Sirius Canada, said that no one was available for an interview at the company.

Both Canadian companies are highly dependent on their American counterparts. Each uses XM or Sirius satellites, whose signals spill over into Canada, as its primary signal delivery system. And both are heavily dependent on their American affiliates for programming. The Canadian services provide only 10 Canadian channels. Sirius Canada adds 100 channels from the United States; Canadian Satellite imports 90.

While Canadian Satellite is publicly traded, Sirius Canada is privately held. Just under 20 percent of its shares are owned by Sirius of the United States; the rest are divided between Standard Radio, a longtime private broadcaster based in Toronto, and the government-owned Canadian Broadcasting Corporation, whose radio networks provide much of its Canadian material.

A spokesman for Standard referred all questions to Sirius Canada. The CBC, which is based in Ottawa, did not respond to requests for comment.

Sirius Canada has a disproportionate market lead. In a note to investors, Drew McReynolds of RBC Capital Markets estimated that Sirius Canada had 300,000 subscribers while Canadian Satellite reported 102,000 as of last November. That situation, he added, ''could complicate any negotiation.''

Both companies faced an unusually difficult regulatory battle just to start operations. Among other things, they had to persuade the government's communications regulatory agency to yield on longstanding rules banning Canadian broadcasters from using foreign satellites.

Mr. Bitove, however, said that he did not believe that the regulator was likely to block any Canadian merger.

''They've been practical about satellite in Canada from Day 1,'' he said. ''At the end of the day, practicality will always rule.''